Milliseconds worth millions in LEO
October 16, 2020
Carlos Placido, a Northern Sky Research (NSR) Senior Analyst, says that the new Low Earth Orbiting (LEO) satellite mega-constellations, while not providing data-rates as high as fibre when connecting major cities but when adding in other delays the satellite-based systems will be able to offer lower latency than fibre across long distances, a situation that could foster wider interest in satellite constellations by financial players.
Placido, in a comprehensive NSR report, says that a LEO constellation when incorporating end-to-end inter-satellite links can result in round-trip latency of just 43 milliseconds.
He reminds readers that a large portion of high-frequency financial trading (HFT) today is happening between computer servers with sophisticated algorithms that trade hundreds of thousands of times a second, seeking to repeatedly make small amounts of profits over tiny periods of time.
“Stock price is subject to constant change, leading to arbitrage opportunities that HFT algorithms seek to quickly capitalise on via speed of execution. Whoever accesses information first has an enormous advantage in speculative markets so, in the age of cloud computing and artificial intelligence, promptly leveraging data can provide a solid competitive edge. Disregarding the controversies around HFT including market-crash risks derived from relying too heavily on computers that play robot wars and make snap decisions on behalf of humans, it can be plausibly argued that a competitive edge of 10 milliseconds is worth millions of dollars for hedge funds and other financial trading stakeholders,” he says.
He compares and contrasts a theoretical trade between New York and London, and says that even the shortest-path, “great circle” submarine fiber connection between New York and London has 28 per cent higher propagation delay than a LEO constellation with satellites orbiting at an altitude of 550 kms (or lower), provided satellites have inter-satellite links (ISL).
“A theoretical shortest-path fiber connection between NYC and London is 5,577 km (3,465 miles) long (assuming Earth radius of 6,378 km). Over such minimum distance, fiber cannot deliver round-trip latency below 55 milliseconds due to fibre’s light refraction index, which essentially makes light travel around 40 per cent slower than in vacuum,” he says.
A LEO satellite constellation with orbits at an altitude of 550 km can be 12 milliseconds faster than fibre optics (round trip propagation latency) when inter-satellite links are utilised. “High Frequency Trading) is a relevant application given the importance of ultra-low latency to the world of algorithmic-based buying and selling of shares, where a competitive edge of 10 milliseconds may be worth millions,” NSR concludes.